Planning out asset protection early

New to the forums, but have read around a lot in the past. I do recall a few threads in the past about asset protection and remember some forum members offering pretty good advice. Basically, here is my situation. I’m a college student. Landed myself in some trouble when I was younger. I’m now facing a huge lawsuit from the incident. Needless to say, I don’t have any assets, I am dependent on my parents. But lawsuit judgments can obviously be enforced down the road. The lawsuit is in another country, but it given US law, it can be enforced in the United States (though how it can vary from state to state).

I’m not naive; I do understand there is probably no way to be completely 100% bullet proof, but I figure there is some way to get close.

Realistically, is there any way for me to protect assets and such as I begin to acquire them in the future? Would doing so be illegal in any way? I do realize hiding assets in divorces is illegal, but I figure this is a little different (correct me if I am wrong)?

Reported for forum changed.

Even if you have no assets, they can always try to garnishee your wages in order to recover the money.

The OP wants legal advice. Moved from General Questions to IMHO.

samclem, moderator

Buy gold bullion, bury it in the ground?

Probably the simplest way to do this is to declare bankruptcy - but that requires your creditor to press for payment you can’t meet first. The other way would be the Kamikaze defence. Don’t have any assets worth attaching - if you buy a house, mortgage it to the hilt, lease your cars, etc.

Or get a cooperative thrid party to loan you money, you go bankrupt, and all debts are cancelled. This requires a friendly cooperative guy who does not mind “losing” a lot of money, and skirts illegality in some way I’m sure depending on how it’s arranged.

Talk to a lawyer, see how long a debt can exist without a collection effort before it’s considered void - I thought someone mentioned about this on a previous thread.

Sorry about posting that in the wrong section of the forum.

I am aware of them being able to garnish my wages, but I am not so concerned about that.

“Federal law places limits on how much judgment creditors can take from your paycheck. The amount that can be garnished is limited to 25% of your disposable earnings (what’s left after mandatory deductions) or the amount by which your wages exceed 30 times the minimum wage, whichever is lower. Some states set a lower percentage limit for how much of your wages can be garnished. (To learn the law in your state, see our Wage Garnishment topic page.)”

While 25% is a fairly significant amount, I am not overly concerned about that. It should not effect me greatly.

Thank you. Given the circumstances, this is not dischargeable (I have spoken to several bankruptcy attorneys).

The OP is essentially talking about a “fraudulent conveyance”. It seems to be a civil cause of action only, but ‘fraud’ connotes intent and intentional acts tend to carry penalties, even if only monetary, beyond just getting caught.

I didn’t read the whole entry but I’m going to guess it’s a tort, so that could be punitive damages. If the cause of action is defined by statute, the penalty would be prescribed there, in this case by federal law I guess since it would have to be enforce by int’l treaty I assume.

There might be other issues as well, but this sounds like it would very likely be at least one.

These are not punitive damages, according to my knowledge. It is my understanding that punitive damages are a criminal matter. This is completely separate; it is a civil case. Regardless, I do see what you are saying. I do realize if I already had assets, hiding them before a judgment might be fraudulent in the eyes of a court. But what I am trying to do is hide my assets as I acquire them. Unsure if this is any different, but a couple of lawyers I spoke to told me there are ways to make myself untouchable (well, my assets and such).

I don’t want to be rude, but if you know what a tort is, then you should know what punitive damages are. If not, don’t assume since as it turns out you’re wrong.

Further, I’m sure there is no problem at all with acquiring assets but your plan is to subsequently disassociate yourself from them in some manner. Those are different events. Fraudulent conveyance deals with the latter.

There ARE places like Belize that will not entertain an action for fraudulent conveyance, at least this used to be true, but I’m not sure even that’s bulletproof.

My apologies. I spoke to a lawyer who said there are ways to do this successfully, but he didn’t go into much detail. One thing he mentioned was something like putting assets/money into a corporation, and that could make them untouchable. Any information about that?

People generally have specialties and mine never touched on this area so I don’t know. But the way these things usually work is that if the conveyance is deemed fraudulent, the nature of the recipient is probably irrelevant. Something like that is probably going to be regarded as ‘extra-legal’, as in existing beyond the protection of the legal system and therefore won’t be recognized or protected. But that’s just educated speculation on my part.

What you’re probably relegated to is jurisdictional dodges similar to when a criminal flees to a country with no extradition treaty with the US or whomever. As in the example with Belize, there the extradition treaty for your money would be action for fraudulent conveyance which they don’t (?) entertain. I think they are or were fairly unusual in that regard though.

I’ve heard that the Cook Islands are a particularly good place to establish an asset protection trust, but don’t you first need assets worth protecting?

In theory, and subject to conditions, yes.

One potential problem is that ANY corporation must be run as a corporation, not as a dodge or end-run around personal problems. That means holding shareholder meetings, etc. even if you’re the only shareholder. Otherwise, if you get sued, the judge might rule that the corporation is a sham. Look up “piercing the corporate veil” for more information.

Really. Could you elaborate?

It doesn’t seem so.

(same link to wikipedia that no one looked at before)

That’s why I said, “in theory.”

A finding of Fraudulent Conveyance gives a judge power to do a great many things that he otherwise couldn’t do.
The whole point of incorporation is to draw a distinction between a person’s personal life and business life. John Smith and John Smith Incorporated are two completely different entities. A lawsuit and judgment against John Smith Incorporated has absolutely no effect from a legal standpoint on John Smith.

A lawsuit and judgment against John Smith generally has an effect on John Smith Incorporated only insofar as John Smith Incorporated is considered to be an asset of John Smith. Now what the practical effect of that might be, I don’t know, especially if John Smith Incorporated issued only a very small dollar amount of shares.

If somebody in the OP’s position started a corporation named John Smith Real Estate and used that corporation to buy a house, which John Smith Real Estate then rented to John Smith, the question of whether or not the house could be seized to pay a debt would depend on two things: (1), whether a court found evidence of fraud, and (2), whether John Smith Real Estate followed formal corporate procedures. The two things are partly related and partly separate.

What would actually happen in a court case depends on a great many specifics that can vary from case to case.

Are you trying to distinguish between actual and constructive fraudulent conveyance? Because it’s going to be one or the other if the judgment will have issued prior to the assets being transferred. I mean, unless YOU’RE using a different definition for the term.

And if your answer is yes, please explain how that matters since I obviously don’t see it yet.

edit: the money to buy the house came from someplace, if I have to point that out.

If you have a workplace retirement account (401(k) and the like), my understanding is that these are not subject to bankruptcy / lawsuit. While it might work differently for savings accrued after the lawsuit (a court might rule that you could have used that money to pay the judgment versus putting it in your 401(k)), it definitely would protect you against future lawsuits.

Cites:
http://www.lodmell.com/lawsuit-protection-part-ii-assets-that-dont-need-protection
https://online.citibank.com/US/JRS/pandt/article.do?ID=JC25

Regarding IRAs: they don’t have the same protection as a 401(k) does. It’s not clear whether rollover IRAs are protected as if they were still in the 401(k).

There’s also the concept of being judgment proof - e.g. putting all your gains into exempt assets. For example in some (most?) states, your home’s equity is judgment proof, so you can put extra cash into paying down the mortgage. Obviously, if your credit is trashed by an existing judgment, you may have trouble purchasing a home.

I don’t know if this would work, but I think this is the sort of thing that has the best chance if you’re not an int’l arms dealer or something. Courts do try to be compassionate.

Thank you all for the advice. Much appreciated. Any other advice is appreciated.

The simplest method is to incorporate and pay yourself through your corporation. You need to set this up so it’s not a completely obvious dodge. What comes to you as income via the corporation is still attachable so you need to pay yourself minimally in terms of salary, but make use of the of assets held by the corporation (company car, company house/office living quarters) and expenses paid by the corporation (insurance, meals, clothing, client entertainment, vehicle expenses) that you can legitimately claim use of in your day to day lifestyle.

If you are going to do this be aware that whatever you do for living, if you are not an independent contractor or self employed your employer is going to have to be OK with paying your corporation not you. This should not be an issue if you are a professional as they commonly use corporations to get paid, however if you are a fry cook or hourly office worker it may raise eyebrows.

IIRC, the primary dwelling n Florida cannot be sued away from you. (This is why OJ moved to Florida. His multi-million dollar mansion there could not be seized to pay off his debt to the Goldmans. A lot of other direputable millionaires know this trick… Conrad Black, for example.)

The trouble with a corporation is that it has shares, which are assets. Joe Smith Inc. Real Estate may not be sueable, but the shares Joe Smith owns of JSI-RE would be a personal asset, of value based on the net worth of JSI.

I suspect if you monkeyed with the bylaws so that “only Joe SMith or his designated agent can buy these shares, Mrs. Joe Smith has first right of refusal to buy the shares for $1, corporation may reduce Mr. Smith’s management fees to $1 when any lawsuit is pending” or any other bylaw - would this be seen as a fraudlent attempt to bypass the payment of the outstanding judgement?

Plus, the IRS, if it’s like the Canadian CRA, probably dislikes the accumulation of cash in a corporation, so you would have to either keep buying more investment assets for the corproration’s primary business purpose, or disburse the cash assets as dividents…